Putting a spike into pension spiking

From Grassroot Institute, May 17, 2019

Some advice for all our policymakers out there struggling with public pension liabilities:

The first step is admitting you have a problem. The next step is getting real data on how bad that problem is. Only then can you began working out how to address it.

Which means the Kauai County Council deserves praise, as it has already started down the road to a healthier pension system.

Last fall, the Kauai County Council invited Joe Kent, executive vice president of the Grassroot Institute of Hawaii, to make a presentation on the state’s public pension crisis and what it could mean for Kauai, based on the findings of a report he wrote last year,“How to resolve Hawaii’s public pension crisis.”  While presenting the policy options outlined in the report, Joe specifically addressed Kauai’s problem with pension spiking.

Pension spiking refers to the practice of employees working lots of overtime in the last years of their employment in order to raise their average annual incomes for those years. Because pensions are based on a calculation of years worked and average annual income, that extra overtime can increase the amount of the pension payments.

In egregious cases of pension spiking, the extra overtime can amount to an additional $30,000 or $40,000 per year. Including the overtime can “spike” an employee’s salary up to six figures. From there, it’s easy to see how pension spiking can have a critical effect on an already overloaded public pension system.

Kauai has seen a dramatic increase in pension spiking in the past year. In 2017, pension spiking cost the county $854,398. In 2018, that number nearly tripled to $2.4 million.

The numbers are alarming, and the Kauai County Council has decided to get some answers. At a meeting on May 1, the Council met to consider a memo from Council Chair Arryl Kaneshiro outlining the need for performance audits of practices within the Fire Department and Department of Public Works. Among the practices to be examined by the audits is pension spiking.

As Joe explained to the Council in his presentation, there are many reasons why the county might be experiencing a rise in pension spiking. Knowing the “why” of it will help it formulate a policy to curb the problem.

There is no reason the state and counties cannot enact laws and rules to prevent overtime abuse. In fact, they have a responsibility to taxpayers to put a stop to pension spiking.

Stopping pension spiking is as much about protecting government employees as it is about preventing wasteful or fraudulent practices. We believe the employees deserve a healthy, reliable pension system. Pension spiking poses a threat to that system. In addition, those employees are also taxpayers, so any burden of the unfunded liabilities and excessive overtime will also affect them.

Kauai is leading the way with an audit of pension spiking among county employees. Now, the remaining counties need to follow suit with their own pension spiking audits.

Only then can we get on to the next order of business: stopping pension spiking for good.

E hana kakou! (Let's work together!)

Keli'i Akina, Ph.D.

President/CEO